Myanmar eyes energy privatisation

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Under plans revealed in October, state-owned energy firms in Myanmar will seek foreign partnerships to improve operations and open up downstream energy operations to investment.

Already an important component of Myanmar’s economy, the energy industry is likely to prove an attractive prospect for overseas investors once the state’s role is reduced.

In addition to the privatisation proposals, the energy agency also said it would offer nine new offshore blocks for exploration, in a further bid to bolster Myanmar’s reserves and help meet rising domestic demand in the long-term.

Privatisation beckons

Speaking at a natural resources conference in mid-October, Energy Minister U Zay Yar Aung said that the fuel distribution and retail arm of Myanma Petroleum Products Enterprise (MPPE), Myanma Oil and Gas Enterprise (MOGE) and Myanma Petrochemical Enterprise (MPE) are looking to team up with international partners.

The minister acknowledged that the partnerships are the first steps towards gradually transitioning the firms to becoming publically-owned, a process which could take up to a decade. “It is difficult to change directly from being a state-owned enterprise to being a public company,” he said. “But we’re implementing reform to move towards public companies in this sector.”

Initial moves came in July when MPE put out a tender for a foreign partner to upgrade and operate its aging oil refinery at Thanlyin, located outside Yangon, and one of three oil refineries in Myanmar. Under the terms of the tender, the successful bidder will also be permitted to import, store and distribute petroleum products.

The idea of opening up Myanmar’s refinery operations has been on the agenda for some time, with the media reporting in 2012 that MPE and the Energy Ministry were looking at privatising several energy operations. Officials concluded that foreign firms, which could bring experience, capital and advanced technology to the table were the preferred option as joint-venture partners.

U San Tun Aung, managing director of energy sector services provider, Petroleum Services Consultancy, agrees that these factors are crucial for driving the industry forward, particularly aiding domestic players in the transfer of knowledge. “There is immense potential for local companies operating within the oil and gas arena. They are in a position to absorb and learn from new technologies that foreign companies use,” Aung said.

Driving growth

The move comes as Myanmar’s economy is performing strongly, with the energy industry a key driver of growth. In early October, the World Bank upgraded its forecast of GDP growth to 8.5 % for the fiscal year, from 7.8% previously. The bank attributed the upward revision to strong growth, rising domestic demand and increased FDI inflows.

The oil and gas sector is a major FDI destination, placed second behind transport and communications for capital inflows. As political reforms have led to the lifting of international sanctions, the government has moved to speed up oil and gas exploration. Myanmar has already hit its FDI target of $4-5bn for the 2014-15 fiscal year, six months early thanks in part to sectors such as the energy industry, which attracted $800m in the first half of the fiscal year, according to the Myanmar Investment Commission.

In terms of its upstream operations, MOGE announced plans in October to auction the rights of nine offshore blocks next year, on top of 20 allocated in March. The blocks include five deepwater and four shallow, with 65% of the shallow blocks holding proven hydrocarbons, said Than Tun, offshore director of MOGE.

The increased licensing activity is expected to boost exploration over the next few years, especially in Myanmar’s deepwater shelf, which remains mostly unexplored with little or no geological data available.  The government and companies are finalising contracts and exploration should begin on the blocks early next year, added Tun.  

Home and abroad

Opening up Myanmar’s downstream energy sector to foreign investors is expected to yield significant rewards for industry players. Aside from opportunities in exports, domestic demand for energy, particularly gas, looks set to rise sharply in the coming years.

Myanmar has struggled to meet the needs of local industry, especially when it comes to electricity generation, leading to some industry participants calling for a limit on exports.  Estimates from the Ministry of Electric Power put the requirement for extra generation capacity next year at 2500 megawatts (MW), with forecasts suggesting the total could rise to 14,000 MW by 2030. While proposals have been made to better harness hydroelectricity or develop coal-fired power stations, offshore gas exploration is set to bear substantial fruits.

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